Heating costs expected to rise

Todd Yohe of East Stroudsburg, a foreman for Skoda Contracting Co., Inc.… (KEVIN MINGORA, THE MORNING…)

November 24, 2012|By Sam Kennedy and Spencer Soper, Of The Morning Call

Whether you use heating oil, natural gas or electricity, you are likely to pay more — potentially a lot more — than last winter.

The main reason has to do with the weather. Last winter was practically balmy, which was especially good for oil users. It meant they were spared the full brunt of record high oil prices.

But it looks like they won't be so lucky this time around, according to the U.S. Energy Information Administration. Oil prices remain high, and weather forecasters do not expect another reprieve from Mother Nature.

With normal winter weather, oil users can expect to pay 19 percent more to heat their homes this winter, according to the EIA. And if the average temperature turns out to be 10 percent colder than normal, they can expect to pay 32 percent more.

"Ridiculous" — that's the word Tony Malandra, president of Yeager's Fuel in Allentown, used to describe the price of oil, which last week was about $3.70 a gallon at local full service dealers.

He blamed Wall Street commodities traders who, he said, are driving up the price of oil despite ample supply. "We're waiting for prices to pull back," he said. "These things are cyclical."

Also affecting the price of oil are growing demand in Asia, instability in the oil-rich Middle East and production disruptions by extreme weather, such as Hurricane Sandy.

Malandra has good reason to hope for a market correction. Yeager's and other oil dealers do not profit from high prices. To the contrary, they take a hit, since they make their money on small surcharges and service fees, which they collect less of as their customers conserve more.

"They are turning their thermostats down, putting their sweaters on," he said.

Natural gas users, meanwhile, can expect to pay 15 percent more this winter, and 28 percent more if the average temperature is 10 percent colder than normal.

Of course, natural gas users have a lot less to worry about than oil users, because they have a much smaller expense to begin with.

The typical heating oil customer who lives in the Northeast is expected to spend $2,526 on fuel this winter, up 67 percent from the 2006-2007 winter, according to the EIA.

But at $1,024, the projected expense for the natural gas customer is virtually unchanged over the same six-year period — and less than half that of oil.

The growing differential between the two fuels is largely the result of new technology that has led to increased domestic gas production, including along Pennsylvania's Marcellus Shale formation. Today, the United States produces nearly nine-tenths of the natural gas it consumes, compared with half of its oil.

Not surprisingly, natural gas has overtaken heating oil to become the region's most popular heat source. In Lehigh and Northampton counties, 78,536 homes relied on natural gas in 2010, according to U.S. Census estimates. Oil was a close second, heating 77,668 homes, and electric was third, in 74,405 homes.

A decade earlier, oil was the leading heat source — and by a wide margin. In 2000, 84,351 homes in the Valley used oil, compared to 60,427 for natural gas heat.

Donald Caldwell is among those switching heat sources. Crews were busy at his Bethlehem rental property Wednesday running gas lines that will heat the home. He rents the house to college students, and is worried they won't be able to afford heating oil. Also, he thinks converting to natural gas will make the property more valuable if he tries to sell it.

"Last year we had five students from DeSales and they really struggled" with heat costs, Caldwell said.

He expects monthly heat bills to drop in half with a gas conversion.

He's not alone. A total of 11,316 UGI customers converted their home heat source to natural gas in the fiscal year ending Sept. 30, up more than 50 percent from the previous year and a record for the utility, UGI spokesman Joe Swope said. Most of those converting previously had oil heat, he said.

"With ample local supply of natural gas that is not prone to weather disruptions, most analysts expect natural gas prices to remain relatively stable in the near future, providing greater confidence among potential customers that their decision to convert will be a wise one for years to come," Swope said.

West Allentown resident Donald Clarke converted the burner on his boiler from oil to natural gas about a year ago, and he has seen significant savings. He has spent $1,772.45 on natural gas in the past year, compared with about $3,300 for the same period a year earlier on oil.

The decline in natural gas prices is also benefiting those who heat their homes with electricity.

In a quirk of how electricity generation rates are determined, the price of natural gas has disproportionate influence. So it follows that electricity rates track natural gas, and that those rates have fallen with the increase in gas extraction.